Railways faces double taxation dilemma

The fate of Pakistan Railways (PR) hangs in balance as far as double taxation is concerned, as Punjab Revenue Authority (PRA) approached PR for registering its three dry ports located in Punjab to collect sales tax on services in the presence of 16 percent Federal Excise Duty (FED) collected by the Federal Board of Revenue (FBR).
Official sources told Business Recorder that PRA has approached the Chief Traffic Manager Dry Ports to register it with the Authority. After the 18th Constitutional Amendment, provincial government has been empowered to collect services taxes on custom bound traffic, maintained by the PRA.
The PR officials were of the view that it is a federal institute and already paying taxes to FBR. However, PRA was of the view that warehouses of dry ports are located in the province and come under their jurisdiction. The PRA is going after collection of custom bound traffic (goods, freight services) while passenger tickets are excluded. Sources said the Ministry of Railways has approached the FBR on the issue of registration of Pak Railways with PRA and payment of sales tax on services under Punjab Sales Tax on Services Act, 2012. Under Federal Excise Act 2005, Pakistan Railways is legally bound to collect FED @ 16 percent and to pay the same to the federal government. Under provincial act, the services are also subject to sales tax @ 16 percent.
The PR has questioned 32 percent sales tax/excise duty on services including 16 percent Federal Excise Duty (FED) and 16 percent provincial sales tax, ie, double taxation under Federal Excise Act, 2005 and Punjab Sales Tax on Services Act, 2012. PR has sought FBR interpretation of the issue to decide about its fate as to who would collect sales tax. In response, the FBR has asked for performa from the Railway with details about income and taxes, etc. Now, the FBR would give a final decision that whether Railway would continue paying taxes to the FBR or provincial government. Legally, the FBR has to issue a clarification to Pakistan Railways about the applicability of federal excise duty and provincial sales tax on railways.
Meanwhile, Ministry of Railways has also requested the PRA to hold in abeyance the enforcement and recovery of sales tax till clarification from the FBR. Director General Operations Ministry of Railways has informed the FBR that PR is maintaining and managing dry ports and providing storage and road container services to the custom bonded sealed containers. The Federal Excise Duty on services rendered by dry port and terminal operators on imports @ 16 percent is being collected and paid to the federal government in accordance with the provisions of the Federal Excise Act, 2005. After the 18th Constitutional Amendment, sales tax on services has been devolved to the provinces and under the Punjab Sales Tax on Services Act 2012, sales tax has been levied on the said services. Consequently, the Punjab Revenue Authority is pressing hard for registration under the said Act for collection of sales tax and depositing it with the province.
In the backdrop of the said development, the following submissions are being made: Firstly, the Federal Excise Duty (FED) is leviable under Federal Excise Act 2005 read with entry No 44 part-I of 4th Schedule to the Constitution of Pakistan. In terms of serial No. 14 of Table-II of First Schedule to the Federal Excise Act 2005, services provided or rendered by port and terminal operators in relation to imports excluding stevedoring services are subject to FED @ 16 percent. As such, it is a constitutional levy and, consequently, Pakistan Railways is under legal obligation to collect it and to pay the same to the federal government.
Secondly, the federal sales tax on goods, except services, is leviable under entry No 49 of the said schedule to the constitution of Pakistan. Under the 18th Constitutional Amendment levy and collection of sales tax on services stands devolved upon provinces and as per serial No 20 of the second schedule to the Punjab Sales Tax on Services Act, 2012, the services provided by port operators (including airports and dry ports) are also subject to sales tax @ 16 percent. This too is a constitutional levy.
Thirdly, the question arises should Pakistan Railways start collecting FED as well as sales tax on services - the total charge of FED plus sales tax will shoot up to 32 percent excluding income tax which again will be leviable on taxable income of the operators. This would virtually be double taxation unbearable by the service providers on one hand and having legal infirmities on the other.